US: Who will lead the Fed? - Rabobank

In view of analysts at Rabobank, who will lead the Fed is a far more important driving factor for the markets than today’s interest rate decision.

Key Quotes

“President Donald Trump is expected to announce his decision on Thursday and is said to be leaving towards Fed Governor Powell. However, Trump is known for changing his mind with other potential candidates including Stanford University Economist Taylor, former Fed Governor Warsh and current Chair Yellen. If Trump opts for Taylor or Warsh, we are likely to see the US dollar firming and US bond yields rising sharply, at least initially, as the markets will start pricing in higher interest rates.”

“It is not only about the next Fed chair. President Trump could have a major impact on the Fed’s course in coming years as he is nominating a new Fed Chair, Vice Chair, and most of the Board of Governors. This amount of Fed appointments by a single President is extraordinary and not by design. However, the high turnover in the Board of Governors has made it possible. This allows President Trump to align the Fed’s policies with his own economic agenda. After the extreme makeover, we are likely to see the Fed support Trump’s efforts at deregulation. What’s more, Trump can choose whether he wants monetary policy to be hawkish or dovish in the coming years, according to Philip.”